Risk-managed time-series momentum: an emerging economy experience
Keywords:
Time-series momentum, Risk-managed time-series momentum, Indian stock marketAbstract
Purpose
This research study aims to design a novel risk-managed time-series momentum approach. The present study also examines the time-series momentum effect in the Indian equity market. Apart from this, the study also proposes a novel risk-managed time-series momentum approach.
Design/methodology/approach
The study considers the adjusted monthly closing prices of the stocks listed on the Bombay Stock Exchange from January 1996 to December 2020 to formulate long-short portfolios. Newey–West t statistics were used to test the significance of momentum returns. The present research has considered standard risk factors, i.e. market, size and value, to evaluate the risk-adjusted performance of time-series momentum portfolios.
Findings
The present research reports a substantial absolute momentum effect in the Indian equity market. However, absolute momentum strategies are exposed to occasional severe losses. The proposed time-series momentum approach not only yields 2.5 times higher return than the standard time-series momentum approach but also causes substantial enhancement in downside risks and higher-order moments.
Practical implications
The study's outcomes offer valuable insights for professional investors, capital market regulators and asset management companies.
Originality/value
This study is one of the pioneers attempting to test the time-series momentum effect in emerging economies. Besides, current research contributes to the escalating literature on risk-managed momentum by suggesting a novel revised time-series momentum approach.
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Copyright (c) 2022 Simarjeet Singh, Nidhi Walia, Stelios Bekiros, Arushi Gupta, Jigyasu Kumar, Amar Kumar Mishra
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